ANZ Banking Group
wealth boss
Joyce Phillips
has criticised the pricing ­models prevalent in the Australian life insurance market, warning companies needed to come up with more ­affordable premium structures in the next two years to repair the health of the troubled industry.

Australian life insurers now charge customers on a “stepped" ­premium basis, where the price of policies soar as consumers age. It is also a model that encourages cost-conscious customers to drop or axe their policies completely as they get older.

“So at the time when you probably most need insurance, the affordability is a struggle. That’s what’s driving the lapses across the industry," Ms ­Phillips said.

“In other countries around the world, the stepped premium product has virtually disappeared because of that issue – and that is something that over the next 24 months Australia will have to manage."

Insurers will need to contemplate strategies such as rolling out level premium programs, where the cost of policies spread across a period of time.

Ms Phillips’s assessment of the life insurance industry comes as Australian life companies continue to battle numerous challenges that are impacting the profits in their businesses.

These issues include worsening lapse rates, bigger and more frequent claims and increasing involvement from lawyers encouraging clients to table claims.

Some financial planners, a key ­distribution partner for life insurers, also engage in “churning" or moving clients from one insurer to another in a bid to pocket bigger commissions.

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The problems in the industry have led some prominent Australian life insurers, including TAL, AMP and ­Suncorp, to downgrade or write down profits in their life books.

Ms Phillips said one way of combating lapse rates was to use big data to predict consumers’ behavioural patterns, including when they are likely to lapse.

“One of the things life companies do is understand how to manage data . . . predicting who might be lapsing well ahead of time and how we get to those clients. That dramatically improved [our lapse rates]," she said.

ANZ’s Australian retail insurance lapse rates has fallen from 14.1 per cent in September last year to 12.1 per cent in March.

In New Zealand, lapse rates have fallen from 16.7 per cent in September to 14.9 per cent in March.

Ms Phillips’ comments come as ANZ ramps up the use of technology across its wealth arm.

The bank unveiled an app, Grow, for Apple product customers that marries everyday banking with wealth products, including superannuation and investments.

Ms Phillips said the bank will also attach a financial advice capability to the app in the next 12 months. “The click on the screen will go to [advisers] – this is actually to bring more clients to them. In the near future, Grow by ANZ will also include enhanced investing tools, access to virtual advice and new ideas on how to give back to our ­communities through philanthropic instruments," she said.

“It is an important milestone in our journey to change the way our ­customers engage with their wealth," she added.